2022 contrary to: Rosneft confirmed the sustainability of the business model

Rosneft has published IFRS financials for 2022, follows from the company’s announcement. Behind the outwardly dry, dispassionate figures is the colossal work of all departments and employees. As the head of Rosneft, Igor Sechin, diplomatically noted, “in the face of external pressure and a volatile macro environment, the company has once again demonstrated operational efficiency and confirmed the sustainability of the business model.”

Needless to say, both the macroeconomic and geopolitical environment were unprecedentedly harsh last year. In fact, force majeure. However, despite the “nuclear” sanctions, the general tension, the withdrawal of Western partners from joint projects, the fall in energy demand and price volatility, Rosneft has proved that it is able to quickly respond to external challenges and quite successfully resist them. In particular, thanks to tight cost control, it has managed to keep the growth in unit costs for the extraction of raw materials at a level below industrial producer price inflation. And this is just one of many achievements.

“Hydrocarbon production by the company in 2022 exceeded the results of 2021, amounting to 5.10 million boe. (barrel of oil equivalent) per day,” said Igor Sechin, CEO of the company. – I would like to note the Sakhalin-1 project separately. After the departure of the former operator, we quickly restored production and began tanker shipments, and the drilling program was restarted. In addition, more than three thousand highly qualified jobs have been saved.”

Recall that the former operator of the project, the American company ExxonMobil, de facto withdrew from participation in it, from May 15, 2022, it stopped oil production, and then (from September 16) and gas, thereby completely paralyzing the activities of Sakhalin-1.

Financial indicators

Rosneft’s results on key annual indicators turned out to be higher than the stock market’s expectations, especially in terms of net income attributable to shareholders, which amounted to 813 billion rubles. According to analysts at BCS World Investments, EBITDA (the company’s earnings before interest, taxes, depreciation and amortization) exceeded their forecasts by 9%, and net profit – by 67%. On Monday, the oil company’s shares rose 4.05% on the Moscow Exchange to 380 rubles per share. According to the report, “2H net income assumes a dividend of 18 rubles per share (yielding 4.8%), 20% above our forecast.” And in February of this year, the company completed the payment of interim dividends for a total amount of more than 216 billion rubles, which corresponds to 50% of net profit under the IFRS for the first half of 2022.

Meanwhile, last year the company was faced with the need to increase operating and transportation costs. This was due to the current macroeconomic environment. In particular, prices for electricity increased, as well as tariffs for the transportation of oil and oil products by rail and pipelines. As a result, the volume of capital expenditures reached 1.1 trillion rubles, an increase of 7.9% compared to 2021. However, the situation did not affect the stability of the business model in any way: thanks to competent management decisions, “the ratio of net financial debt to EBITDA at the end of the reporting period amounted to 1.3x, which corresponds to the value at the beginning of last year.”

“At the same time, it is worth noting that over the past three years, the tax conditions for the activities of oil companies have been tightened 14 times, which, of course, creates risks for the implementation of our production program,” says Igor Sechin.

Exploration, production, processing and marketing

The high efficiency of exploration work allowed the company to discover 7 fields and 153 new hydrocarbon deposits with reserves of about 3 billion tons of oil equivalent. (oil equivalent). The largest discovery in Russia in 2022 was the Madachagskoye field on the shelf of the Pechora Sea (water area in the southeastern part of the Barents Sea) with recoverable oil reserves of 82.3 million tons. As a result, Rosneft’s hydrocarbon reserves under the Russian classification reached 159.3 billion barrels of oil equivalent as of December 31. (21.5 billion toe).

Development drilling meterage totaled 11.2 million meters last year, up 3.3% year-on-year. As stated in the report, “in recent years, Rosneft, despite the volatility of the macroeconomic and geopolitical environment, has maintained consistently high volumes of production drilling.” In 2022, more than 3,000 new wells were commissioned, with the share of the most efficient horizontal wells with multi-stage hydraulic fracturing amounting to 68%. Specific production here is more than twice as high as for directional wells.

The 2021 result for hydrocarbon production was exceeded by 2.3% (to 5.1 mmboe per day). Gas production volumes reached a new historical high of 74.4 billion cubic meters.

Due to the high intensity of seismic surveys and drilling of new wells, the resource base of the flagship Vostok Oil project in the north of the Krasnoyarsk Territory (started in 2020) has also grown by 300 million tons, to 6.5 billion tons. In the second half of 2022, the company began pilot development of the Payakhskoye field (130 kilometers northwest of the city of Dudinka in the Krasnoyarsk Territory), where more than 25,000 meters of penetration have been drilled so far. The construction of the main oil pipeline “Vankor – Payakha – Bay Sever” is also underway, and the expansion of coastal and berthing infrastructure is underway. As part of the project, winter roads of record length were built, 2,000 kilometers long, passing through the territory of the Krasnoyarsk Territory and the Yamalo-Nenets Autonomous Okrug.

As for refining, in the reporting year, 94.4 million tons of oil passed through the Rosneft refineries. The company continued to fully meet the needs of the domestic market in high-quality motor fuel that meets modern standards. The volume of sales of petroleum products in the country reached a record 42.1 million tons, an increase of 6% year-on-year. Here the matter is also in the fact that unique hydrotreatment catalysts have been developed that allow the production of diesel fuel that meets the Euro-5 standard. Previously, such catalysts were not produced in Russia at all, but were imported from abroad.

ESG principles

A separate place in the report is given to sustainable development initiatives within the framework of the Rosneft-2030: Reliable Energy and Global Energy Transition strategy. The principles of ESG (E – environment, S – social, G – government), which mean the policy of social responsibility, have been guided by the oil company for more than a year, they form the basis of its corporate programs.

The company aims to achieve zero accidents by 2030 or earlier. In 2022, the frequency of incidents associated with the loss of equipment with severe consequences (PSER-1) decreased by 30% compared to the baseline in 2021. The volume of drilling waste decreased by 34%, as it was possible to increase the efficiency of its handling and prevent its additional accumulation. The program also continued to identify, repair leaks and reduce methane emissions at hydrocarbon production facilities. Within the framework of the program, air and ground monitoring covered more than 800 objects of 20 enterprises.